Planning to File a Claim? Learn These Words First

debt claim court

Plaintiff – The party initiating the legal action in court and looking for redress or more commonly money. Also referred to as the Complainant. This is the person or company doing the accusing.

Someone looking for redress or feels their rights have been violated is referred to a petitioner.

They will start the process by filing or having their legal representative file a court claim and having it served on the other side.

Defendant -The party against which the legal action has been initiated. They have to defend themselves. The term applies to private individuals or companies or institutions, there is no difference. In a criminal case this person would also be referred to as the accused.

A claim can be against one defendant or multiple defendants. Each one would have to file a defence if they want to avoid having a judgment entered against them.

ClaimAfter paying the court a fee this is the document prepared by the plaintiff that is filed with the court, laying out his or her case against the defendant.

The bare minimum necessary in a claim is :

Name address and Telephone contact for defendant

Exact amount you are seeking.

If it is a business to business claim, describe who the plaintiff is and what it does and do the same for the defendant.

For example: The plaintiff is a transport and shipping company registered in Ontario. The defendant is a manufacturer of furniture registered in Ontario.

Next describe in detail the facts that gave rise to the damages unpaid bill you are seeking payment for.

Attach whatever evidence you have to substantiate what you have stated and the amount you are claiming. If there is a provision for interest in your agreement you can ask for that too.

Defense – This of course is what the other side, the defendant will have to write up as a response to the claim and file with the court as well as serve a copy on the other side.

If the claim is unjustified state why this is so, and attach whatever documentation and evidence you have to substantiate your position. If you feel the claim is partially justified you have the option of proposing a payment for part of the claim and asking for the rest of it to be dismissed.

Get Noticed and Get Paid: Learn How to Use A Legal Notice

legal notice

What’s a Legal Demand / Notice?

A Legal Demand is the first contact by a law office with the debtor.

It lets the debtor know that the law firm has been retained (hired) by the

creditor to take action to collect an outstanding debt.

It will typically state the amount due and sometimes, if the debt stems from some

type of damages, briefly describe what the circumstances were that gave rise to the debt.

Other features of the demand letter, are letting them know that interest, legal and court

costs will be added to the balance and lastly, it gives them a deadline, usually 7 days, in which the recipient of the letter is asked to take steps to rectify the situation before legal action is taken.

What does a legal demand / notice do and what are the benefits if any?

In and of itself it has no legal force but it accomplishes a number of things.

First, it lets the other party know that you have legal representation. In a situation where you are being ignored and not getting paid this is an effective way of getting their attention.

Second, it puts them on notice that they better do something “or else” as the expression goes.

Third it injects another party into the situation so that you know longer have to deal with a stressful situation. It also allows for the calming of any tensions that might have built up.

Fourth and perhaps most important, it may get you paid without further legal expense.

These Words Are Worth a Fortune: Learn The Language of Debt Collection

money - debt collection

Terms you might come across when dealing with Collection of Outstanding Debts

To make it a little easier to navigate the world of accounts receivable and debt collection I will, once or twice a month, define terms you will come across during the process of collections or a small claims court action.

Some of these terms will be familiar to some of you, others may have heard them but be unsure of their exact meaning. So simple ones or not I hope to cover them all eventually. Let’s start with fairly common ones:

Creditor: If you are owed money and have not been paid, you are a creditor.

Debtor: If you owe money and have not paid by the time payment was due, you are a debtor.

Collection Agency: Everyone knows this one right? They are the folks that call you and ask you to pay what you owe their client. So anyone you engage to collect what is owed to you is a collection agency, correct?

Well no, actually that is not correct. The person contacting a debtor can be a Collection Agency, or a Law Office (Lawyer or Paralegal) or a third party acting on behalf of the creditor.

So what is the difference?

Collection agencies are companies that are licensed by the government and have to comply with specific rules. In Ontario they would be operating under the Collection Agency Act. Each of the collectors working for them would also have to be licensed individually under the same Act.

What do they do?

They are allowed to contact debtors in writing and on the telephone and make demands for payment as long as they comply with rules under the act . They can also report a debtor to credit reporting agencies like Equifax or Trans Union .

What do they not do?

They are not allowed to file court claims or appear in court on your behalf, or take any other legal steps. Once it reaches that stage they have to assign it to a legal professional.

Law Firms– Lawyers & Paralegals -are licensed and regulated by the Law Society of Ontario. They generally do not make collection calls or send out a lot of letters. But they will send out a demand and take legal action through the courts on your behalf to recover what is owed you.

Firms that are experienced and do a lot of collections work will contact the debtor before taking any court action and make a determined attempt to resolve the matter. They also report judgments to credit reporting agencies like Equifax, and continue working to collect your money after a judgment if it is still necessary.

Third Parties – Creditors will often have someone they know or have a relationship with contact the debtor. This could be a friend, an accountant or maybe just someone who is very experienced in business.

What are they allowed to do?

Nothing. Unless they are a licensed collection agency or a member of the Law Society they are not permitted to take collection action or appear in court on behalf of someone else. Furthermore, it may make matters worse and more difficult when you finally do hire a professional.

Learn How to Safely Use Credit to Get Paid Faster

happy businesswoman using credit

When giving credit can help solve an issue with your client

We have all been there; the service has been rendered and the invoice has been sent out. The invoice due date has come and gone and you still have not been paid. Perhaps you have already called and spoken to your customer in the past and gotten a promise that payment was coming out soon.

Soon has not come and neither has the payment. So you contact your customer again and this time, to your surprise, the customer complains about the quality of the service or the delivery date.

You check your records and see that this has never been brought up before, everything was just fine. As far as you are concerned there was nothing wrong with either the product delivered or the service. It looks like a belated excuse not to pay your bill.

At this point some business people will issue a credit or reduction of their invoice just to get it paid and get this wrapped up.

Clearly this will eat into your profit margin but it might be worth your while so you can get the matter resolved in an amicable fashion without wasting too much time and money.

Issuing a credit: doing it right

The idea of issuing a credit on an already issued invoice is to get the customer to not only pay, but pay quickly and not give you any more headaches. You want the credit to have the desired effect and also protect you from a client who will take your credit and still not pay you!

What your credit should look like

Make sure you show the original amount due, the date when it was due, and the amount of your credit ( say 10% or whatever you agreed on) and then the new total balance.

Last but most important stipulate a deadline by which the balance must be paid, failing which the credit is withdrawn and the amount due will revert to the original balance. This will motivate your customer and also protect you down the road from being stuck with your lower amount should you have to take 3rd party action to get paid.

You should require your customer to pay you within 7 days of getting the credit, make it a win -win settlement.

How to Protect Yourself from Bad Debt | Part 3: Strengthening Your Position

business - debt collection

Extra steps to really strengthen your position

In addition to the measures that we’ve already discussed in Part 2, you may want to request the following:

Applicant’s personal guaranty(s) with spouses if possible. Many prospects might balk at this but it is your right to ask for it in return for granting credit. This way if the company closes down for any reason you can look to the owners/directors for payment.

I have had many of our clients (accounting firms for instance) put this in their engagement letter or agreement because they often deal with clients that have multiple companies. After awhile the work begins to snowball and often the service provider is directed to bill a company that may not have any assets or that suddenly has wound down leaving many hours of work unpaid for.

Another piece of information I highly recommend requesting is the SIN # and date of birth of the owner/director and authorization to pull personal credit report.

Agreement for you to verify the information on application from external sources (banks, trade references, credit bureaus, etc.)

Last but not least is the signature of the person, his name spelled out underneath (good luck reading most signatures) what position applicant has with company and that he/she is authorized to bind the company/corporation.

What if the prospect refuses to supply the information requested?

Sometimes prospective clients may start complaining about the application or specific parts of the application. If that happens you could rely on the old “This is our company policy for any shipments /service that has not been paid for “

If you are concerned that you might lose the business and you assess the prospect as being credit worthy you might loosen the requirements on such things as a personal credit report or guarantee .

Some might not want to pay interest on past due accounts. You could then change it to ‘ interest will be charged if it has to be turned over to a third party for collections.’

It is also a good idea to get them to initial those clauses you really want enforceable such as their guarantee, agreement to pay collection fees etc.

There is always a middle ground to be found, but remember the more you have on your credit application the easier it will be to collect your money should something go wrong.

What else should I do?

I recommend updating your client’s credit and banking information once a year or certainly every two years. Problems can come from new clients but sometimes even from long standing clients.

Is there a new CEO?

Has their bank changed?

Has the company been sold?

Has the company merged with another company or just changed its name?

Are there associated companies that use your product/services but are not the ones issuing purchase orders?

Another helpful and fairly simple thing to do is to make a copy of your customers check when it comes in and pop it in their file for your records. It may come in very handy in the future.

Do it at least once or twice a year with regular customers.

How to Protect Yourself from Bad Debt | Part 2: Know Your Client

documentation-debt-collection

Last week we discussed what you should be looking at before granting credit (see last week’s post) and that certain steps need to be taken. This week we answer the question –

What are those steps? 

Well for starters you want information. So back to where we started from; have your prospect fill out a credit application. It won’t guarantee you’ll get paid but it will make it much easier for whoever you use to collect your money to do a more effective job.

Think of what a bank asks you for when you open an account or take out a loan. They are selling you money and they want to know all about you. Your prospects may not want to answer that many questions but you should get the basics.

There are many different types of credit applications available commercially. Pick one that suits your company best. Are you dealing solely with businesses or do you service consumers? Perhaps you do both. Whatever you do your credit application at a minimum should have:

Legal Name and address of the prospect
Operating name (if different) Name and address of any parent company
All contact information: I e: phone #’s, e-mail addresses etc.
How long in business
Names of owners/principals/directors/officers
Bank references -Name of Bank, Branch address +copy of void cheque
Three Trade references – with name of person and position at company
Your terms of payment
Applicant’s agreement to payment terms, to interest on past-due amounts
and to pay for any legal and collection costs

Next week…some additional steps to strengthen your position and further lessen your risk

How to Protect Yourself from Bad Debt | Part 1: Should You Take The Risk?

protecting against bad debt

The dilemma: Just ship it or Cross those T’s and dot those I’s ?

“I’m about to close this guy. Asking him to fill out a Credit Application will just spook him.”

Sound familiar? It’s what I call the Sales Dept. vs Credit Dept standoff.

Your salesman just wants to close that deal, and you want the business. He is ready to sign on the dotted line so why not go ahead, it can’t hurt, right?

Well maybe, maybe not.

In my experience there is often tension between the salesman and his credit department, that is loath to let the product or service go out without being completely sure the customer is credit worthy. So who is right?

The answer probably lies somewhere in the middle. You do not want to be so restrictive that you push away the prospect. On the other hand a sale or a new contract where the invoice will wind up not getting paid is not worth having.

How can I guarantee I won’t get burnt?

There is only one way – make sure you get paid up front or when you deliver your goods or services.

Short of that you will always be taking a risk when you extend credit and there is no 100% safe guaranteed way of extending credit. But there are ways of minimizing the risk to your company by taking certain precautionary steps. These steps will do two things:

1 They will leave you better informed as to who you are dealing with and allow you to better assess the risk you are taking.

2. They will give you a wider range of options and allow you to take more effective measures should your customer /client be unable or unwilling to pay your invoice.

You are in the driver’s seat when it comes to how much risk you take on and what terms and conditions you place on those risks. The trick is to determine what the right balance is for you, because the more onerous the terms and conditions are the more likely you are to lose certain prospects. There is an inverse proportional relationship between tight credit requirements and volume of new customers.

Some businesses will not do business with a prospect unless they feel very secure, and they require a fair bit of information from prospective customers while others are more relaxed about it. Some businesses even require a commitment by the owners or principals of the company they will be providing services for.

What is the right level of credit to be granted and how do I protect my business from getting stung?

The first thing you need to do is determine the level of risk you can afford to take. One consideration is general and one is particular to you. Let’s start with the latter.

Different people have different comfort levels when it comes to taking risks. No one wants to lose money but some folks can roll with the punches and others are risk averse and will lose many a night‘s sleep over the very same issue.

So you as the Owner, or Controller, CEO, COO, etc. either alone or with a board of directors have to decide on how much risk your company is comfortable with.

A good example of this is mortgages. Until very recently, your best option, financially, was an open, variable mortgage. It gave you the lowest rate possible. The numbers were right there for all the world to see, yet many people preferred to pay more for a locked in mortgage so they have the peace of mind of knowing they would not get caught by higher rates when a change came.

The second factor to take into consideration is more tangible. What are you selling and what is it costing you? What do you have to lose?

If you are providing monthly window washing services to various businesses, you may do very well but each invoice is for a relatively small amount and your risk is spread out over a large number of customers and fairly small. In his case you could afford to take some risks

If you are in the jewellery business or sell other high ticket items, you have a much higher built in cost and risk with each sale. You need to be more cautious in this scenario. Naturally there is a wide range in between these two examples.

You might also be primarily investing your time. Perhaps you are a consultant or therapist. How much time are you willing to risk?

Keeping in mind that most customers are honest and the delinquent accounts will – hopefully- only amount to small percentage of your overall sales. So the question is what can you afford to lose?

That does not mean you should ever let a non paying client off the hook (unless it’s your relative perhaps) but it will determine how tight your requirements should be and what steps you may need to take.

NEXT WEEK…..

What are those steps?

Make Money From Your Account Receivables by Charging Interest

charging interest on debt

Tip #2- Interest on Past Due Accounts: To State or not to State -What’s the point?

Well, the point is to motivate your clients to pay you on time and before other creditors. When you extend credit to a customer you are extending a courtesy. Some might argue you are doing it to get the business. That may be true, but it is also true that you are doing your customer a favor. With that favor come terms; you get to set the terms as the credit grantor.

What should the terms be? They can range from COD to payable on receipt, to 60/90 days. It is completely in your hands but you should be guided by practical considerations such as your industry’s norms and how credit worthy your customer is.

Past due invoices hurt your cash flow and cost you money. You should be compensated for that and let your debtor know in advance that you expect to be by charging interest.

Wont that alienate my customer?

Not really. Experienced business people are used to seeing that and understand they need to pay on time.

Should I insist they pay the interest too when they pay late?

Unless you are a large organization most waive the interest as long as the payment is not seriously delinquent. An invoice that is due upon receipt and is paid in 90 days should have some interest payable, but most of my clients will let it go unless it has been turned over to a third party for collection.

Is it legal to charge interest?

It is as long as there was an agreement before hand that you would charge interest on past due accounts. This is usually accomplished by stating it on your invoices, order confirmation, and credit application if you have one.

So as long as I have it on my documents I’m ok?

Yes and no. It will motivate your client but to make it enforceable in court you need to have it stated in very specific language per the Interest Act or a judge will only award you a low court rate of interest.

You must spell out the specific monthly rate you are looking for AND the annual rate.

Eg. 2% per month (24% per annum) will be charged on past due accounts.

Is there a limit on how much interest I can charge?

Yes, anything more than 59% per year is deemed usurious, but judges will often not grant even lower rates if they deem it too high. I usually recommend to my clients that they stick to 2-2.5% per month (24-30% per year)

Just make sure you word it correctly.

To Get Paid Faster: Offer a Discount

The problem

Anyone in business will wince when they hear the words “aged receivables” or ” past due invoices”.

We’ve all been there. Clients are always in a rush to get their orders filled or services rendered, but when it comes to paying the invoice…not so much.

Suppliers want their invoices paid in a timely fashion but not at the cost of alienating a client.

The terms of payment usually appear on your credit application (more on that at a later date) and on your invoice and contract, if you have one. Standard terms for credit grantors as we all know is usually 30 days. We also all know that customers rarely pay before then and in most cases will pay well after the 30 days.

The solution?

One of the oldest and most accepted ways of motivating clients to pay sooner than later is by offering a discount on the invoice. Usually, it appears as a term on the invoice – 2%/10 Net 30.

Your customer can get a 2% discount on his bill if they pay in 10 days. Some only offer 1%.

QuickBooks on line offers some guidelines at: https://fitsmallbusiness.com/early-payment-discounts/

They suggest you look at several factors:

Are your competitors offering a discount? If so how much?

What is the standard in the industry?

As they put it

“If it’s industry standard to offer discounts or your competitors are offering them, then you may be doing yourself a disservice by not offering a discount. You should match your discount to your industry standard or your competitors’ terms, unless you offer some other advantage to customers (e.g. faster shipping or lower base prices).”

Has the client paid on time in the past?

“Your client’s payment history will also come into play. If you have a customer who already pays early, there may be no reason to offer them a discount. On the other hand, if your customer habitually pays late, this may incentivize them to pay early for a change.”

Still Not sure if this is for you?

Here are several good reasons it might be.:

You’ll get paid faster.

You’ll increase your working capital.

And most importantly you will avoid having a bad debt and possible write off. The longer you wait to get paid the higher the possibility you will not get paid at all.

So What’s next?

If you don’t have these numbers yet, review your accounts receivable and generate an aged list. That is, divide them into those clients that are current, those that are 30,60 and 90 days past due.

How many clients are in each category?

If most are current to 30 days you are doing really well.

If most are 30-60 days you are still doing pretty well but you may want to motivate them by offering a discount in the future.

You might want to add 1% or 2% /10 -net 30 to their invoices.

I recommend calling or emailing their accounts payable department and letting them know about this great opportunity for savings your company is offering them.

90 days plus

Generally, any accounts 90 days and over are a problem and need to be dealt with separately with a collection protocol.

Next week – we will discuss the ups and downs of charging interest on past due accounts…good idea or bad idea?

They Didn’t Pay…


I recently heard the following rather bizarre story from someone I know. His company had done marketing work for a lawyer over a period of time and rendered several invoices. After several months of not getting paid by this lady lawyer on 2 older invoices, he faxed 2 reminders and 4 new invoices to the accounts payable department in her firm.

The next day he got a call from the police saying she made a harassment complaint.

The officer said that if they sent her anymore invoices they would be charged with harassment.

I find it hard to believe that the police would actually have gone through with their threat, but this story certainly shows there are some very strange things happening to people who are just looking to be paid for services rendered.

Needless to say this lawyer is now going to get sued by this creditor.

If a non paying client is getting aggressive and disagreeable, unload that file to a third party. You will save yourself from a distracting headache that will take you away from your business and may actually get your outstanding balance paid without having to file a court claim.

Michael Lebovic